Mohit Khanna of Purnartha expects Q2FY25 earnings to be sequentially better after the two-month-long general elections and a heat wave negatively impacted the Q1FY25 earnings.
According to him, sectors like Auto and Consumer discretionary should post better recovery due to some pent-up demand. He is also expecting better QoQ results from the Pharma sector.
Purnartha has overweight positions in Capital Goods, Infra, and Metals & Mining. "The government spending on infrastructure building continues to remain strong. We have now seen some traction on the private capex as well. The trend is likely to continue as such projects have larger capital requirements and long build-out periods," said the seasoned equity analyst and fund manager with more than 15 years of market experience.
Do you think the money flowing from India to China post-stimulus is the major reason behind market correction, rather than SEBI's rejig F&O norms, Middle East tensions and overvaluation?
Markets always need a reason to change their trajectory and recency bias among investors points to the most recent event as the prime culprit. In hindsight, this latest event turns out to be just a trigger, a catalyst, a result of something else. I see the recent money flow to China, that you are referring to, as a trigger event.
From its lows in August 2024, Nifty 50 rallied 9-10 percent by the end of September 2024. This rally came after knowing the fact that Q1FY25 corporate earnings were not great and there would be limited space for the FY25 earnings estimates to be increased. Additionally, the Government’s execution of its Budgeted capex plan has been slow this fiscal. Therefore, post September’s rally, Nifty 50 was trading much more expensive to its historical average multiples. Also, the year-long conflict has now started to look like a full-fledged war. While SEBI’s action was somewhat anticipated, it did have a sentimentally negative impact. Lastly, Chinese markets were indeed cheap, thus, it is natural for any investor to buy cheap and sell expensive.
Do you expect September quarter earnings (starting later this week) to be better than June quarter?
Overall, I expect Q2FY25 earnings to be sequentially better. The Q1FY25 earnings were negatively impacted by 2-month long general elections and a heat-wave. Due to some pent-up demand sectors like Auto, Consumer discretionary should post better recovery. I am also expecting QoQ better results from the Pharma sector. However, capex-related sectors might disappoint in the Q2 results. More than the Q2 results, I believe the more important aspect would be management commentary regarding the acceleration in the execution post a slow June quarter.
Have you seen a major improvement in rural demand and some slowdown in urban demand?
The data is all over the place. The Q2 update released by an FMCG major seems to suggest that after a subdued Q1, the Q2 is impacted by heavy rains and floods in the hinterlands. But the data released by 2-wheeler auto companies seems to suggest that all is fine with rural India. If you look at the CPI data, Rural inflation has been ahead of Urban inflation over the last 14 consecutive months till August 2024. This seems to indicate a subdued demand environment. I believe we should be patient and wait for a much clearer picture with the Q2 earnings update.
Which are the sectors on your radar post the current correction?
In the Purnartha One Strategy (Multi-asset Fund), we have overweight positions in the Capital Goods, Infra, Metals & Mining. The government spending on infrastructure building continues to remain strong. We have now seen some traction on the private capex as well. The trend is likely to continue as such projects have larger capital requirements and long build-out periods. Thus, it is a costly decision to abandon a capital expenditure plan mid-way.
IT, and FMCG are the defensive play. Improvement in fundamentals of the US banks due to lower interest rates is positive for IT.
Chemicals is contra call. We have taken exposure to selective companies which have completed their capacity expansion and value to be generated by increasing capacity utilization.
We have underweight positions on Autos, and Retail. After a strong recent run-up, valuations are unfavourable.
In Consumer Durables, heightened competition should have a negative impact on ROEs (return on equity) over the medium term.
Are you adding exposure to big banking & financial services names in the current correction?
No. I am an equal-weight in the Financial sector as of now. I may buy something opportunistically but overall I do not want to have any meaningful overweight position on Financials.
Is it the time to buy metal space?
I am already overweight Metals in the multi-asset Purnartha One Fund as of now.
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